How Foreign Business Entities can start Business Entities in India

Entry Strategies for Foreign Investors

STARTING OPERATIONS IN INDIA

A foreign company planning to set up business operations in India has the following options

A. AS AN INDIAN COMPANY

A foreign company can commence operations in India by incorporating a company under the Companies Act, 2013 through
  • Joint Ventures; or
  • Wholly Owned Subsidiaries
Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be obtained from Department of Industrial Policy & Promotion, Government of India.

A1. Joint Venture With An Indian Partner

Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.
Joint Venture may entail the following advantages for a foreign investor:
  • Established distribution/ marketing set up of the Indian partner
  • Available financial resource of the Indian partners
  • Established contacts of the Indian partners which help smoothen the process of setting up of operations

A2. Wholly Owned Subsidiary Company

Foreign companies can also to set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.
Apart from this, the following options are also available-

B. AS A FOREIGN COMPANY

Foreign Companies can set up their operations in India through
  • Liaison Office/Representative Office
  • Project Office
  • Branch Office
Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

B1. Liaison Office/Representative Office

Liaison office (LO) only acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office can not undertake any commercial activity directly or indirectly and can not, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.
Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI). The master circular issued by RBI in the regard can be viewed here

B2. Project Office

Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to some general conditions. Such offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.

B3. Branch Office

Foreign companies engaged in manufacturing and trading activities in their native foreign countries are allowed to set up Branch Offices in India for the following purposes:
  • Export/Import of goods
  • Rendering professional or consultancy services
  • Carrying out research work, in which the parent company is engaged.
  • Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
  • Representing the parent company in India and acting as buying/selling agents in India.
  • Rendering services in Information Technology and development of software in India.
  • Rendering technical support to the products supplied by the parent/ group companies.
  • Foreign airline/shipping company.
A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).
Branch Office on “Stand Alone Basis”
Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India.
No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.
Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India.
No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.
Application for setting up Liaison Office/ Project Office/ Branch Office may be submitted in form FNC 1

Other important aspects

FOREIGN DIRECT INVESTMENT (FDI) POLICY

FDI under automatic route is now allowed in all sectors, including the services sector, except a few sectors where the existing and notified sectoral policy does not permit FDI beyond a ceiling.

Automatic Route

No prior approval is required for FDI under the Automatic Route. Only information to the RBI within 30days of inward remittances or issue of shares to Non Residents is required. RBI has prescribed a new form, Form FC-GPR (instead of earlier FC-RBI) for reporting shares issued to the Foreign Investors by an Indian company.

Government Approval

Foreign Investment proposed not covered under the ‘Automatic Route’ are considered for Governmental Approval on the recommendations of the Foreign Investment Promotion Board (FIPB)
Foreign Investors

Application for such cases are to be submitted in FC/IL form or on plain paper to Foreign Investment Promotion Board (FIPB) in Department of Economic Affairs, Ministry of Finance.
Non Resident Indians
Non Resident Indians are required to submit their proposals to the Secretariat for Industrial Assistance (SIA) Department of Industrial Policy and Promotion, Government of India for consideration of FIPB.

INVESTMENT FACILITATION

Secretariat for Industrial Assistance (SIA) in Department of Industrial Policy and Promotion, Government of India provides a single window service for entrepreneurial assistance, Investor facilitation and monitoring implementation of the projects.
This blog is authored by Company Secretary Ronak Gupta. He is author of many blogs and runs many websites and youtube channels. His work is dedicated to corporate laws, legal, secretarial, professional services and also in strategy formulations for corporates. Mail him at: csronakgupta23@gmail.com or call at :9910226715

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